( b) $ 720.82( c) $ 758.76( d) $ 798.70( e) $ 838.63
3. Question:( TCO B) The Congress Company has identified two methods for producing playing cards. One method involves using a machine having a fixed cost of $ 10,000 and variable costs of $ 1.00 per deck of cards. The other method would use a less expensive machine( fixed cost = $ 5,000), but it would require greater variable costs($ 1.50 per deck of cards). If the selling price per deck of cards will be the same under each method, at what level of output will the two methods produce the same net operating income( EBIT)?( a) 5,000 decks( b) 10,000 decks( c) 15,000 decks( d) 20,000 decks( e) 25,000 decks
4. Question:( TCO B) Firm L has debt with a market value of $ 200,000 and a yield of nine percent. The firm ' s equity has a market value of $ 300,000, its earnings are growing at a rate of five percent, and its tax rate is 40 percent. A similar firm with no debt has a cost of equity of 12 percent. Under the MM extension with growth, what is Firm L ' s cost of equity?( a) 11.4 %( b) 12.0 %( c) 12.6 %( d) 13.3 %( e) 14.0 %
5. Question:( TCO A) Which of the following statements is CORRECT?
( a) If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock’ s price exceeds the strike price by about 10 %, because this permits the option holder to lock in an immediate profit.
( b) Call options generally sell at a price less than their exercise value.
( c) If a stock becomes riskier( more volatile), call options on the stock are likely to decline in value.